Growth in 'breaker' market thrusts egg industry into turmoil

by DON STONEMAN & ROBERT IRWIN

The 55-year-old Souligny markets eggs from 17,000 layers with his son Jean, 35, who also cash crops nearly 600 acres. Father and son both hope that the farm may eventually be handed on to Jean's two sons, now aged six and three. Like a number of others around this closely-knit, largely French-Canadian community of St. Isidore in Prescott County, a few miles across the Ottawa River from Quebec, they travel from their homes in town to the farm to sort eggs each day. Chores take only an hour each morning and evening, and the Soulignys strive for excellence. The family recently won the county's soil and crop improvement association award of merit, presented annually to an outstanding farmer, and their farm was one of the early egg farms to receive a Hazard Analysis and Critical Control Point (HACCP) certificate for food safety from the national agency.

But Laurent won't be enjoying much farm life for the next year. Within a week of being elected CEMA chair in late March, he was headed for Manitoba where unrest has prevented CEMA from getting a marketing order to expand national production from the National Farm Products Council (NFPC). Without the order, CEMA can't increase production to meet demand and imports will continue to exceed Canada's trade commitments. Major egg producers like Ontario and Quebec fear that with a new trade agreement in the offing, Canada's import commitments may be as much as 40 per cent higher than necessary.

Meanwhile, Manitoba has already moved to increase production; several years ago, a major producer in the province went ahead on its own. This so piqued Quebec, the second-largest producing province, that last year it refused to pay the levies its producers owe to the national agency. Before this year's annual meeting, when Souligny was elected chair, CEMA faced potential operating deficits in the millions of dollars. Souligny performed some political magic and left the meeting with a cheque for $3.6 in his pocket from Quebec and a smile on his face. Quebec's commitment to continue in the national plan is only the first step towards making the national agency work. Growth, it seems in supply-managed feather industries, has its costs.

'Breaker' market sets the pace
Recently, most provinces approved a new scheme to deal out market growth among themselves. Canadian production would increase by about four per cent with the addition of 810,000 layers. Opposing the move were Manitoba, Saskatchewan and the Northwest Territories, who were cut out. They appealed to NFPC and the federal overseer sent the plan back to CEMA for revision. "Our council felt the agency did not follow the overbase criteria that are articulated in the provincial-federal agreement," says Cynthia Currie, the council's chair. CEMA has since resubmitted the proposal for council consideration.

Most signatories to the national agreement agree that more production is necessary, but they can't agree on how to do it. The grief comes at least partly because of how the industry is growing. The so-called "table egg" market is flat and the process market is growing. And there's the rub, for the process market brings farmers about 50 cents a dozen compared to roughly $1 for the table market.

Supply management for eggs was set up in the early 1970s by ground-breaking federal agriculture minister Eugene Whelan. Eggs quickly became his bane. Each province had a program to store surplus production and a scandal broke when eggs in Quebec were stored too long and went rotten. A new system had to be devised. Back then, most eggs were produced for the table market and relatively few - only five per cent of total demand -- went to the processing or "breaker" market. A levy was imposed on table eggs to raise the breaker egg price so that all Canadian egg farmers get the same return for their product, wherever it was sold.

But the growing restaurant and hospitality trade favoured the more easily handled and pasteurized liquid product. As process demand increased, so did the levies against the table market, dragging down returns. Thus, rather than being a residual market, processed product in demand by "breakers" has become a force in egg price setting.

The 810,274 bird increase that is currently being contested would put 278,365 hens in Ontario barns and nearly as many in Quebec. The additional growth in production would be financed by a further three to four cent per dozen levy to be taken off the $1 that producers now receive for table eggs sold across the country. It amounts to about $1 a bird and would cost the industry about $18 million, says Harold Froese, chairman, Manitoba Egg Producers.

Froese argues that the levy system is at its limit and increased industrial demand will only make it worse. At the moment, the industrial program sends about 20 per cent of eggs raised in Canada to breakers. The world's highest egg-consuming country is Japan, where the table and process markets are equal. If Canada goes to 50 per cent processing, in the next decade the returns for eggs will drop from roughly $1 per dozen after levies to about 80 cents per dozen. To continue to pay the processors' bill makes producers less competitive, Froese says. Rather than continually increasing levies on table eggs, Froese favours expanding the national "Grow For Processing" program to cover additional market growth. Under this program, a processor would sign a contract with a provincial board asking for more production. Producers would be given a permit to raise the eggs. It would be entirely voluntary. A security system would be put in place to ensure that "Grow For" eggs don't end up in the domestic market.

Tired of waiting
The trouble is that, in the past, Manitoba hasn't followed the letter of a previous "Grow For" agreement.

Inovotech is CEMA's major customer. Between 40 and 50 per cent of the industrial eggs in Canada are processed at the its Winnipeg plant. Manitoba has been negotiating with CEMA to supply eggs and displace imports, for Inovotech has been importing the production from one million U.S.birds. In November 1998, Manitoba got permission to allocate 200,000 birds on permits. Manitoba also placed another 200,000 birds and has a signed contract with Inovotech for the production from 700,000 birds in the province.

In the meantime, a large-scale producer, Sanalta, got tired of waiting. The Sanalta project had already placed 500,000 birds aiming to produce for Inovotech. Once freight rate assistance was dropped, "the political climate for this was perfect", Froese says. "We were under intense pressure from our provincial government," Froese says, noting that "we have the feed grain" to produce the eggs.

Early this year, CEMA decided to allocate more birds in the scheme which alienated Manitoba and was rejected by the NFPC. There are other issues as well, Froese says. Quebec and Alberta would like to see their entire consumption supplied from within their provinces -- what Froese calls "the old self-sufficiency argument." He asserts that Manitoba and Ontario are only two areas in Canada where it is economically feasible to break eggs. "We are trying to deal with an economic issue based on politics and it isn't working," Froese says.

The "Grow For" program might be acceptable, says Henry Koop of St. Catharines, chairman of Ontario Egg Producers. But, he says, debating it will take too long. "We need the allocation today." But not everyone agrees. "Some provinces are afraid of what will happen with the WTO and some don't want exports at all." It will be a long discussion, he predicts.

High stakes poker
In mid-March, Quebec took some of the pressure off when it handed over its cheque for last year's levies to CEMA. "They paid up on hope and faith that everything would be all right," Koop says. Meanwhile, CEMA chairman Laurent Souligny says the "Grow For" program isn't entirely the answer. There must be complete assurance that these eggs won't end up in the table market, he says. Otherwise the entire system comes apart. Last ditch talks in early April averted another crisis. Froese says that CEMA had threatened to cancel the industrial produce program entirely on Apr. 4 if Manitoba didn't come around.

The industrial removal program is the underpinning of supply management, Froese says. While the target may have been Manitoba, the repercussions would have been felt in all ten provinces, Froese said. Eggs would have been shipped across the country in search of markets and prices would have dipped.

Manitoba admits to having 130,000 more birds in its Grow For program than had been allocated. It offered to reduce this number by attrition, not replacing flocks as they were spent. In return, the province wants CEMA to withdraw the penalties it has assessed against it and remove the threat of withdrawing the industrial product program.

Froese says CEMA would not accept that and also asked for Manitoba and Saskatchewan to withdraw their complaints against the 810,274 allocation program. "We kind of thought that was the issue all along and not so much the over-quota," Froese says.

So it is coming down to a high stakes poker game between CEMA and Manitoba, with Saskatchewan thrown in for good measure.

Meanwhile, the Ontario Farm Products Marketing Commission is anxious that more eggs, somehow, be produced in Ontario. The commission views imports as a lost opportunity for Ontario producers, says market analyst Sue Gillespie.

On May 3, Manitoba and Saskatchewan's complaint will be heard by a NFPC panel headed by council vice-chair Ron O'Connor of Shelburne, a former Ontario chicken board chairman. Filling out the panel are Paul Ouellette, a former Quebec chicken processor, and Sandy McCurrach, a former British Columbia turkey and beef farmer.

The panel's recommendations will be taken to the nine-member council and a report could come down as soon as the third week of May, Currie says. Whether the ruling will sort out the troubles facing the egg industry in Canada is anyone's guess. It will likely be a long hot summer for Laurent Souligny. BF

Another Season's Promise in the Ground

by DON STONEMAN

Seeking Stability
You won't find Andrew Dykstra, 27, hanging out in the coffee shop. He has neither the time nor the inclination.

Dykstra runs a 1,000-pig nursery barn west of Clinton, in Huron County. He and his father farm a total of 690 acres, and have a 20,000-unit broiler barn as well. Andrew's pig barn, built in 1994, is part of a TPC (The Pork Corp) loop. Recently he renewed a five-year contract raising weaners. Pigs come into the barn aged 14 to 21 days on average. Andrew raises them for seven weeks until they are ready to go to a feeder barn.

Six years ago, trade talks made the future for the poultry industry uncertain. On the other hand, export markets were starting to boom and the pork industry in Ontario was gearing up for a long-awaited reinvestment in infrastructure. "The opportunity came along and I thought it was a way to diversify," says the positive-minded Dykstra.

Dykstra remains certain that joining a loop was the right move. TPC "has a vested interest" in his success, Dykstra says. "They were willing to teach me what I had to know to do this part of it." He had always liked pigs, but wasn't interested in farrowing sows. "I didn't feel that I wanted to be inside a barn for eight to ten hours a day."

The pig barn operates on an eight-week cycle -- pigs are in for seven weeks, then there is a week to do cleanup before the next batch arrives. Including wash down times, the pigs take about two hours of time a day. The poultry barn demands are about the same.

Dykstra's income remained steady during the pork crisis almost two years ago. "I'm happy with (the returns) I'm getting, and the stability," Dykstra says.

Like the livestock production on the farm, cropping also holds to a steady track. Wheat and soybeans are no-tilled. For three years, Dykstra tried zone-tilling corn, then returned to disking and chisel plowing wheat stubble where manure was spread. Andrew is adamant that manure must be worked into corn ground.

In any given year, about one-sixth of the acres are in wheat, with the rest of the land split between corn and soybeans. A typical rotation is corn, soybeans, corn, soybeans, then wheat. A guiding philosophy is that fields needing nutrients are typically manured, then planted to wheat. Otherwise, acres are put into another round of corn and soybeans.

The poultry manure is spread at a consistent rate. Areas that are deemed light on nutrients get extra passes with the box spreader. Liquid pig manure, on the other hand, is spread by a custom operator. Andrew has no plans for expansion. "I want to be able to run well what we have," he says. At current prices in that area, cash cropping doesn't cash flow land purchases.

The Dykstras have followed a regular program of soil testing, and there is a plan for where manure will go every year. Last year, Andrew Dykstra grid sampled about 300 acres. He is getting partial information on site-specific yields because the local custom operator, who has a long relationship with the Dykstras, has a yield monitor on only one of his three combines.

Buying a combine would be nice, but a minimum of 1,200 acres is necessary to justify the investment and buying a combine for a yield monitor isn't worth it. Besides, points out Dykstra, "we know our land, where the potential is, and where it isn't."

A High-Tech Future
A little to the south and east of Dykstra, near Hensall, Mark Brock is hanging his hat on a high-tech farming future.

Brock, 26, manages the family cash crop operation on the border between Perth and Huron counties. The 1,200 acres is divided equally among soys, corn and wheat. Output from a finishing barn totals about 2,100 pigs a year. Brock buys weaners on the open market and sells the finished pigs where he can at the best price. "We don't do a lot of forward contracting on the pigs," he says.

A couple of years ago, Mark's parents, David and Deanna, bought a broiler breeder operation at Monkton. Four Corners Poultry is managed as a separate company from the home D & D Farms. Last summer, Mark began hauling poultry manure 45 km one way to the land base east of Hensall. The goal was to bring up the nutrient and organic matter levels on the home fields. The solid manure was spread at a rate of seven to eight tons per acre on the wheat stubble in the fall. The manure is hauled in semi-trailers by a gravel company and spread with a box spreader calibrated to put a consistent amount on the wheat fields.

Fields that are manured in the fall will be planted to corn in the spring. Like Dykstra, Brock thinks it is important to incorporate manure. Because soybeans and wheat are planted no-till, "the only time we can really work manure into the ground is when we take a chisel plow through the wheat stubble in the fall or take a cultivator through it in the spring" before planting corn.

An analysis of a ton of poultry manure shows it contains seven pounds of nitrogen and 15 pounds each of phosphorus and potash. But Cargill crop consultant Pat Lynch, thinks there is more nitrogen there, tied up in the wood shavings, and that it will be released in subsequent years.

Brock compared the cost of trucking to the commercial fertilizers which are being replaced over three years and "it's a wash." The advantage to the farm will come from increased soil tilth, and using a nutrient that is already available at another site.

"We are going to be doing a lot of nitrate testing in the spring and do variable rate applications with a view to cutting back on inputs and not overloading the soil with unnecessary nutrients," Mark says. "We are on a pretty steep learning curve here."

With variable rate anhydrous applications, based on soil tests he hopes to cut down anhydrous applications from an average of 120 pounds per acre to 90 pounds.

Mark Brock's aim is to build up the soil levels and increase organic matter from four per cent to as much as five or six per cent, but he has no idea how well that will work. "I think that over the years we have cropped (fields) pretty hard," says Brock. "The organic matter levels have really deteriorated." He expects to spread a general blanket of poultry manure over the field for about six years (two turns of the rotation), then move to site-specific technology to make further manure applications in the place of commercial fertilizer.

Brock's goal is to reduce input costs and use the resources on the farm more efficiently. "In the past we haven't pushed the pencil and really worked numbers over to see what things really cost us." The goal is to increase profits per acre through decreasing input costs "to get more bang for our buck." All the fields the Brocks run have been grid sampled since the fall of 1996. Fertilizer recommendations come from Cargill. And fertilizer has been spread using variable rate technology for the last three springs.

Last year, the Brocks put a field monitor on the combine before the wheat harvest. Now they have field maps of all the crop land. Mark Brock is working towards making management zones, and breaking all the fields down into their yield and looking at ways to use the information that has been gathered. This spring, the applicator will use rate controllers to apply anhydrous ammonia to fields.

"I'm big on using technology, using yield monitors, rate controllers and all that stuff as tools to achieve those goals. The poultry manure is something that we have to learn to work with and incorporate into our operation. We mustn't look at it as a problem, but as a way to make our crops better."

Site-Specific Pioneer
Site-specific farming hasn't changed how 42-year-old Barry Newcombe farms. But he expects it soon will. Newcombe cash crops 1,200 acres of owned and rented land, and custom operates another 1,000 acres in the Alliston area. His cash crops consist of corn, soybeans, spring and fall wheat, and white beans. A major block of land is 18 miles away, south of Stayner, but near to Collwest Grain Products Ltd. at Collingwood, where grains and oilseeds are marketed.

Newcombe has no-tilled all of his cropland since 1989, but the custom work is done on conventional tilled sandy land, owned by potato farmers who need to rotate to other crops. A Blue-Jet coulter caddy -- a tool bar which allows Newcombe to raise and lower the no-till coulter system -- and a modified three point hitch-mounted planter let him switch easily between no-till and conventionally tilled fields without returning to the home shop to perform major planter alterations.

For four years, Newcombe has been involved in a site-specific farming project with the Ontario agriculture ministry. After four years of recording soil fertility and monitoring yields, he is seeing a trend for some parts of fields to have stable crop yields, regardless of the amount of fertilizer that is applied. Part of the project involves nitrogen response work. "We leave six rows of corn with no nitrogen," he says. "That's some of the most exciting work. Where we could save dollars the quickest is in nitrogen management."

With another season or two of yield and soil test data, Newcombe will be able to create 'management zones' within fields, where inputs can be increased or decreased, depending on the potential to produce a profitable crop. With conventional broadcast fertilizer applications, Newcombe says, some areas of fields maintain high yields, regardless of differing fertilizer applications, while other areas simply fail to produce, often in spite of already high fertility ratings from soil tests.

In theory, there's no use applying more fertilizer there since there is some other limiting factor preventing crops from growing and removing the nutrients. But Newcombe admits that "we are not sure that we have all the answers" in this cutting edge research.

He expects that the current wave of concern over biotechnology will have passed within five years, and he is already embracing Bt corn and Roundup Ready soybeans.

Cropping and Cows
Bob McKinnon and his two brothers farm 1,800 acres of land near Port Elgin, and milk 110 cows. Breeding and other cow-care issues are mostly up to Jim, 48, and Paul, 40. While Bob, 45, takes his turn with the milking, most of his time is spent on the cropping side, buying inputs and selling crops. About half of Cedar Bank Farms' income is from dairy and half is from cash crops.

McKinnon has used a Global Positioning System and yield monitor since 1994 to measure crop yields, perform strip checks) and take part in reduced nitrogen trials with the University of Guelph. He has also been "deep ripping" since 1995, pulling a soil ripper through the fields to break up the hardpan and improve yields on compacted soils.

It's important to know whether there is a hardpan and at what depth, Bob McKinnon cautions, "otherwise it is just a waste of horsepower." To that end, he dug soil pits and used a penetrometer, a rod which is pushed into the ground in the spring when the earth is soft. A meter registers the pressure which is required to drive it into the ground.

In the McKinnons' case, the hard pan "was 15 inches deep and it was not a plow layer." It was likely a result of heavy vehicle traffic.

On lighter soils, deep ripping gave a seven bushel per acre benefit in corn yields in two years, McKinnon says. There was also a yield benefit for soybeans planted a year after that. Ripping "really pays off in drier years," he says. Crop roots can reach into the subsoil to get moisture and hold off the effects of a drought longer. The benefits can best be seen using a yield monitor, McKinnon says. Compaction may be due to pulling a manure tanker through the fields or because of heavy traffic. On fields where one roadway was used for all traffic, corn stalks and yields are usually stunted. Where the soil was 'ripped' to break up the compaction, corn grew taller than in the rest of the field. The ripped areas showed up as a green line on the yield maps, McKinnon says.

Everyone is talking about 'value added' farm-raised products, he says. The market for that is limited he says. In McKinnon's eyes, better returns are going to come to farmers from reducing costs. BF